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Ajit Pai can usually count on support from broadband industry lobbyists and conservative think tanks each time he announces a new policy.

But Pai's proposal to limit broadband choices for poor people who rely on a telecom subsidy program is coming under fire from all directions.

Pai, the Federal Communications Commission chairman, wants a major overhaul of Lifeline, a federal program that lets poor people use a $9.25 monthly household subsidy to buy Internet and/or phone service. Today, more than 70 percent of wireless phone users who rely on Lifeline subsidies buy their plans from resellers, i.e. companies that purchase capacity from network operators and then resell it directly to consumers.

Further Reading

Pai's Lifeline plan would force all of those customers to find new carriers, because he proposes to limit Lifeline subsidies to "facilities-based broadband" providers, those that operate their own networks. As we've previously reported, excluding resellers from the program would limit competition in the market for subsidized plans and push consumers toward network operators like AT&T, Verizon, T-Mobile USA, and Sprint.

Consumer advocacy groups have criticized this proposal, just as they have previous Pai moves targeting the Lifeline program. But the reseller ban isn't even getting support from the large broadband companies that the ban seems designed to benefit.

Sprint told the FCC that "Resellers have played an important and legitimate role in providing competitive broadband and voice service to low-income consumers, and their elimination could have a significant impact on participation in the Lifeline program."

Further Reading

Verizon similarly urged the commission to let resellers stay in the Lifeline program. "The proposed exclusion of resellers from the Lifeline program would be highly disruptive to existing Lifeline beneficiaries and is at odds with the Commission's goal of supporting affordable voice telephony and high-speed broadband for low-income households," Verizon wrote. (T-Mobile and AT&T did not submit comments on the reseller ban.)

Since the FCC hasn't finalized the plan, Pai could still change course.

Pai's proposal was part of a Notice of Proposed Rulemaking approved by the FCC in November in a 3-2 party-line vote. The deadline for filing initial comments on the plan passed on February 21, and the deadline for reply comments is March 23. If Pai follows through on the plan after the comment period, the full commission would vote on it.

Pai’s rationale

Why is Pai proposing the reseller ban in the first place? His proposal says that restricting Lifeline to network operators will encourage companies to build networks, thus improving broadband access:

[W]e believe Lifeline support will best promote access to advanced communications services if it is focused to encourage investment in broadband-capable networks. We therefore propose limiting Lifeline support to facilities-based broadband service provided to a qualifying low-income consumer over the ETC's [Eligible Telecommunications Carrier's] voice- and broadband-capable last-mile network. We believe this proposal would do more than the current reimbursement structure to encourage access to quality, affordable broadband service for low-income Americans. In particular, Lifeline support can serve to increase the ability to pay for services of low-income households. Such an increase can thereby improve the business case for deploying facilities to serve low-income households. In this way, Lifeline can serve to help encourage the deployment of facilities-based networks by making deployment of the networks more economically viable. Furthermore, the competitive impacts of having multiple competing facilities-based networks can also help to lower prices for consumers. If Lifeline can help promote more facilities, it can then indirectly also serve to reduce prices for consumers.

Pai's proposal also notes that the "vast majority of Commission actions revealing waste, fraud, and abuse in the Lifeline program" have involved resellers rather than facilities-based providers.

Lifeline is paid for by Americans through fees imposed on phone bills, and it offers subsidies to people with incomes at or near federal poverty guidelines. Lifeline has a budget of $2.25 billion, indexed to inflation, but no hard cap on spending.

Lifeline has more than 12 million subscribers, but only about one-third of eligible households is receiving the subsidies. Pai's proposal would also impose an annual cap on Lifeline spending, which could prevent many of the remaining households from getting the broadband or phone subsidies they are eligible for.

In addition to the standard $9.25 monthly subsidy for low-income households, tribal residents are eligible for another $25 a month. Pai's FCC has already banned residents of tribal lands from obtaining the $25 enhanced subsidy from resellers and eliminated the $25 extra subsidy for tribal residents who live in urban rather than rural areas.

Widespread protest

Banning resellers in order to spur broadband deployment is misguided because Lifeline is a program designed to address the affordability of service not one designed to encourage new deployment, critics of Pai's plan say.

"The commission's instinct to promote broadband investment is unquestionably correct. But Lifeline is not the vehicle to pursue this worthy goal," American Enterprise Institute Visiting Fellow Daniel Lyons wrote in a blog post today.

He continued:

The Universal Service Program has other programs dedicated to building and maintaining broadband networks, such as the Connect America Fund (whose annual cost far exceeds that of Lifeline). Lifeline has a different mission: to make sure that America's most vulnerable populations are not left on the wrong side of the digital divide. This proposal harms that mission.

Instead of spurring broadband deployment, kicking resellers out of Lifeline would make it harder for network operators to expand their networks, according to industry lobby group USTelecom.

"[T]he proposed elimination of resellers from the Lifeline program would not materially further the deployment of broadband infrastructure, because revenue from resellers already contributes to facilities-based carriers' deployment of broadband facilities," the group said.

The presence of resellers in the market "creates greater incentives for broadband deployment," according to CTIA, the biggest mobile industry lobby group.

Lifeline funding isn't high enough to be "the financial determinant of capital-intensive facility deployment decisions," Sprint told the FCC. The high cost of network deployments makes facilities-based competition "difficult to create and maintain," the carrier said.

The FCC can encourage competition by continuing its current approach of "actively encourag[ing] market entry and expansion by service providers with varying business models," Sprint said. The commission's "pro-resale policies have had a significant impact on the development of competition in the telecommunications market generally and in the Lifeline market specifically."

"[T]he Commission should consider TracFone's suggestion to implement 'conduct-based requirements' to address waste, fraud, and abuse concerns," the group said. "Those carriers violating the conduct requirements should face stiff sanctions, including suspension from program eligibility for serious and deliberate violations."

The Free State Foundation also urged the FCC to quickly follow through on plans to implement the National Verifier program, which was started during the Obama administration in order to prevent payments to ineligible subscribers.

A coalition of groups that represent racial minorities is worried that the proposed reseller ban will leave poor people with fewer viable options. Resellers' participation is critical to Lifeline because "Traditional facilities-based carriers have resisted providing Lifeline on the basis that customer eligibility verification requirements, document retention, and minimum service requirements do not support the high regulatory risk and cost of compliance that have plagued the program," the coalition told the FCC.

Telecoms, state-level regulators, and consumer advocates all seem to agree that a reseller ban would harm poor people.

"Eliminating non-facilities based carriers would deny a majority of Lifeline consumers in New York the use of their preferred carrier and would eviscerate choice and competition in the low-income communications marketplace," the New York Public Service Commission wrote.

The coalition of minority groups warned that with a reseller ban, "low-income segments of society (which include a disproportionate number of racial and ethnic minorities and seniors) will be left behind in a broadband-dependent world."